Publication: Mongolia Quarterly Economic Update, August 2011
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Date
2011-08
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2011-08
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The Mongolian economy is experiencing rapid growth in 2011 the second quarter saw the economy growing at a whopping 17.3 percent year on year, compared to 9.9 percent in the first quarter. Transportation and construction grew at 39.9 percent and 38.4 percent, respectively, while retail and wholesale trade grew at 24.7 percent, with Mongolians spending more on consumption as a result of higher incomes. The mining and manufacturing sectors recorded respectable growth rates of 8.3 and 12.9 percent yoy in the second quarter, respectively. Reflecting the higher growth, unemployment declined from 13 percent in December 2010 to 8.7 percent in June. Informal labor markets for unskilled workers are also booming, with real wages nearly doubling between December 2010 and June 2011. Mongolia's economic outlook depends heavily on global macroeconomic factors: the current uncertainty and poor growth prospects for the global economy are cause for concern. If there is another global recession, Mongolia's small, open economy will be affected. In that case, China's policy reaction will be crucial for Mongolia.
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“World Bank. 2011. Mongolia Quarterly Economic Update, August 2011. © World Bank. http://hdl.handle.net/10986/27086 License: CC BY 3.0 IGO.”
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The global economic outlook has deteriorated considerably in recent months. Financial conditions in high-income Europe, higher oil prices, and, most importantly, the slowing Chinese economy pose risks for Mongolia. The channels through which these operate include financial and trade linkages namely volatility in commodity prices and through demand from China for its mineral exports. Indeed, signs of these are already visible as demonstrated by the decline in exports in April. Other financial market linkages should also not be discounted: Mongolia's banking system, which has shown signs of overheating over the past year, is highly dollarized, with about a third of deposits denominated in dollars and easy convertibility out of the Mongolia Togrog. A sharp economic slowdown and/or an increased macroeconomic instability could expose the liquidity and asset quality vulnerabilities in individual banks and system overall.
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